In-depth Analysis of Defi Insurance Project with Over $10 Million in Financing: Neptune Mutual
Neptune Mutual is a decentralized insurance protocol based on a parametric coverage model, dedicated to reducing the risks faced by insured individuals in the crypto market. Currently, Neptune Mutual has been deployed for testing on the Ethereum and Arbitrum networks. Established in 2021, Neptune Mutual has completed three rounds of financing, with total funding exceeding $10 million. What unique design does Neptune Mutual have to garner such favor from investment institutions?
I. Parametric Insurance Model
The biggest innovation of the Neptune Mutual protocol is its insurance model based on traditional parametric insurance design. Parametric insurance, also known as index-based insurance, does not rely on subjective human assessment for claims, but rather on the triggering of objective events. The biggest advantage of parametric insurance lies in the claims process, as it does not require complex on-site human assessment. Insurance claims can be quickly processed after the contract parameters are triggered. This not only provides more timely compensation for the insured, but also significantly reduces the claims management costs for insurance companies. For more information, refer to:
As Neptune Mutual is decentralized, it has also designed a claims process for its parametric insurance. Unlike other decentralized insurance projects, when an insurance event occurs, as long as one policyholder makes a claim and the claim is successfully verified, all other policyholders of the same type do not need to make additional claims. They will automatically receive compensation, with each unit of policy receiving the same amount of stablecoin payout (minus fees). Policyholders will receive corresponding compensation based on the number of units they hold. Of course, any policyholder can make a claim.
In contrast to other decentralized insurance projects, Neptune Mutual has a unique feature: if a risk event is confirmed, policyholders receive claims without the need to demonstrate actual financial losses. When a risk event occurs, claimants or other holders of the same policy can receive compensation without providing any evidence of loss, submitting data, or screenshots. This means that even if a user speculates or predicts that a risk event covered by the smart contract will occur, they can purchase a policy even if they have no assets in the smart contract. When the risk event actually occurs in the smart contract and is verified by the protocol, all policyholders can receive compensation within a few days. The amount paid is the claim amount determined by the policyholder at the time of purchase when the risk event occurs.
The Neptune Mutual protocol currently only has smart contract and exchange type insurance, with other types of parametric insurance still in the planning stage. Below is a comparison with other decentralized insurance projects (currently the most successful insurance projects) to see the advantages and features of the Neptune Mutual insurance protocol.
II. Underwriting Pool Design
The underwriting pool of the Neptune Mutual protocol can be divided into "dedicated" and "diversified" underwriting pools, with payment guarantees only applicable to the dedicated underwriting pool. The dedicated underwriting pool does not have capital efficiency, leverage, or support for sub-product insurance. The diversified underwriting pool can support sub-product insurance, with additional leverage and capital efficiency for various insurance subjects. The table below shows some important differences and similarities between the "dedicated" and "diversified" underwriting pools.
III. Liquidity Providers
Insurance Contract Creators
The creation of insurance contracts is currently only possible through an invitation mechanism. Any user whitelisted and holding NPM tokens can create an insurance contract. The creator must burn 1000 NPM tokens to avoid creating garbage, suspicious, and incomprehensible insurance contracts. In addition, the contract creator must stake 4000 NPM tokens or more. When there is no underwriting responsibility, the contract creator can choose to submit a proposal to terminate the insurance contract, but it must be decided through the protocol governance process or by the Neptune Mutual team.
With the creation of new insurance contracts, a dedicated liquidity pool is also created. Each liquidity pool is collectively owned by liquidity providers, who provide liquidity, share profits, and collectively bear losses in the event of a claim. The liquidity pool does not belong to the Neptune Mutual protocol.
Before providing liquidity, liquidity providers need to analyze the insurance contract to confirm that it meets their risk preferences. Liquidity providers can provide liquidity in DAI, USDC, or other supported stablecoins. When providing liquidity, liquidity providers must also provide 250 NPM or more (as specified by the insurance creator).
When providing liquidity, liquidity providers receive POD (Proof of Deposit) tokens. POD tokens are assets that generate income (or losses). POD tokens can be redeemed during withdrawal to receive stablecoins.
Liquidity providers can receive the policy fees paid by insurance buyers, and all policy fees paid by insurance buyers are automatically added to the liquidity pool. At the end of each month, the underwriting commitments expire, releasing liquidity again for users to purchase insurance. Over time, the accumulated policy fee income in the liquidity pool (in stablecoins) will increase the price of POD. As a liquidity provider, you can receive income from insurance without redeeming POD.
The surplus funds in the protocol's pool also support flash loans and lending business for additional income sources.
POD Staking Rewards
Insurance contract creators can provide additional rewards to POD stakers. Rewards for staking POD are paid out in project tokens of the insurance contract subject, not stablecoins.
IV. Commissions and Revenue
Purchasing Insurance
Anyone holding 1 or more NPM tokens can purchase insurance contracts for up to 3 months. No KYC is required. To ensure successful claims, the protocol will restrict liquidity providers from withdrawing liquidity for a certain period, meaning that the protocol will lock the assets in the liquidity pool for a certain period. Expired policy fees are automatically accumulated in the liquidity pool.
Commissions and Revenue
The protocol automatically deducts a 6.5% policy fee when a user purchases insurance. The main use of commission revenue is to guide and maintain long-term liquidity and fund the guarantee pool. To build the community, a portion of the revenue is also rewarded to the protocol's governors.
V. Economic Model
The Neptune Mutual token (NPM) does not have a fixed supply, but the maximum mintable token quantity is limited to 10 billion tokens. It will take approximately 10 years to fully issue all NPM tokens by mid-2033. Tokens allocated to strategic and institutional investors are subject to cliff periods and lock-up schedules, with a maximum duration of 2 years, depending on the region. Team tokens will be released linearly over the next 5 years, resulting in a total lock-up period of about 7 years.
Locked Tokens: Release and Circulation
Unlocked Tokens
The distribution of community incentive tokens helps increase the liquidity of the protocol's underwriting pool and the protocol's liquidity. The overall goal is to support Ethereum-based protocols and cover smart contract risks. The distribution time of these tokens depends on the usage of the protocol, as higher initial activity may deplete the allocation more quickly, while lower initial usage will result in a longer distribution period. If these allocations are exhausted, the protocol may consider adjusting other types of allocations to increase community incentives and liquidity pool allocations.
Tentative Token Issuance Schedule
Bond Mechanism
The bond mechanism is inspired by the conceptualized Protocol-Owned Liquidity feature of OlympusDAO. However, unlike the latter, NPM tokens are not infinite and inflationary, so the protocol will not have continuous bond activities. The bond pool feature will only be announced during the season. For each season of bond pool availability, a fixed allocation of NPM tokens will be offered at a discounted price.
As a user, you can use the bond mechanism to exchange your NPM/DAI tokens for discounted NPM tokens after a one-week waiting period (lock-up period). After your lock-up period, you can receive discounted NPM tokens instead of Uniswap v2 LP tokens. The protocol uses Bonds to guide POL (Protocol-Owned Liquidity), increase the liquidity depth of NPM tokens on DEX, and raise underwriting risk capital for eligible insurance contract projects.
VI. Financing Information
As of now, Neptune Mutual has completed $10.3 million in financing. The seed and strategic rounds raised $5 million, with major investors including Fenbushi, Coinbase Ventures, Animoca Brands, GBV Capital, Huobi, and OKX. The private round raised $5.3 million, with participation from XT.com, Gate.io, Bitmart, LD Capital, Mapleblock Capital, Pulsar Global, The DuckDao, Dweb3, Lux Capital, Cabin VC, Poolz Finance, BSC Army, Whitelist Ventures, and CryptoLark.
The Neptune Mutual Cover Protocol is currently in the early stages of development. The project has decided not to conduct any ICO, IDO, or IEO public sales, but instead to distribute all publicly sold tokens to the community.
VII. NFT Airdrops and Tokens
According to the project's documentation, a large number of tokens have been allocated for airdrops to the protocol's users in the coming months and years. The Neptune Mutual NFT series will be divided into the following types - Free to Mint and Soulbound.
Free to Mint NFTs are exclusive artworks that can be minted for free. In Neptune Mutual, users can earn these NFTs by interacting with the platform to gain experience. On the other hand, airdropped NFTs are distributed to individuals without any form of payment or compensation. These NFTs can be provided as promotional rewards or as rewards for participating in specific events or activities.
Project users can earn points in multiple ways by interacting with the protocol: purchasing policies, providing liquidity, or both. By accumulating a certain amount of points, users have the opportunity to receive NFT and NPM token airdrops. However, to mint higher-level NFTs, you must first mint lower-level NFTs. The higher the level of the NFT, the more airdrops of NFTs and tokens you will receive.
Team
The founders of Neptune Mutual are: Binod Nirvan, Edward Ryall, Gillian Wu. Relevant links:
Official Website:
Whitepaper:
Marketplace:
Snapshot:
Twitter:
Discord:
Telegram:
Telegram (Chat):
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